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<p>
  Through the put-call parity, we can find that there is a synthetic equivalent for all of the basic positions in underlying assets and its corresponding options. In other words, the risk profile(the possible profit or loss) of any position can be exactly duplicated with a complex combination of the other basic positions. These equivalents are synthetic underlying and synthetic options.
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The rule for creating synthetics is that the strike price and expiration date, of the calls and puts, must be identical. For creating synthetics, with both the underlying stock and its options, the number of shares of stock must equal the number of shares represented by the options.
<p>
  There are many arbitrage strategies based on the idea of the synthetic position. Here we demonstrate two of the most common strategies: the conversion and the reversal.
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<td><strong>Strategy</strong></td>
<td><strong>Content</strong></td>
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<td width="33%">Conversion</td>
<td>Synthetic Short Position: short call + long put
The actual stock position: long the underlying stocks</td>
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<td>Reversal</td>
<td>Synthetic Long Position: long call + short put
The actual stock position: short the underlying stocks</td>
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<p>
  Traders use conversions when options are overpriced relative to the underlying stock and use reversals when options are relatively underpriced.
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